Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.
A new ILEPI Policy Brief, released this morning, investigates the pros and cons of public-private partnerships in the construction industry. [Update: The Monitor article].
The report, Collaborative Development: The Pros and Cons of P3s on Construction Projects (PDF), finds that public-private partnerships (P3s)– such as the proposed Illiana Expressway– offer the potential for significant cost savings for the public sector. P3s allow governments to increase internal investment, capitalize on the efficiencies and innovations of private companies, and build infrastructure slightly less expensively and slightly more quickly. For the private sector, P3s provide stable assets (infrastructure facilities) with predictable long-term returns from user fees for portfolio diversification. P3s also allow private entities, backed by the government, to borrow cheaply.
The Policy Brief utilizes case studies to demonstrate how P3s may be mutually beneficial and discusses the expected positive benefits of three potential P3 projects in the Midwest:
- Current: The Chicago Skyway P3 allowed the City to repay $855 million in debt, close a $375 million budget shortfall, save millions of dollars annually in interest payments by improving its debt rating, fund $875 million in reserves, and invest $100 million in other infrastructure.
- Current: The Indiana Toll Road P3 allowed the State to contribute $2.6 billion to a 10-year transportation plan which will have constructed 87 roadways, resurfaced 49 percent of the state’s highways, and rehabilitated or replaced 19.5 percent of the state’s bridges by the end of 2015.
- Current: The Denver metro region’s Northwest Parkway P3 generated $603 million in revenues with the potential for additional toll revenues for the public agency.
- Proposed: The Illiana Expressway in the Chicago metropolitan area will support 24,000 vehicles per day. In the construction phase, the expressway will support 3,782 construction jobs, $0.98 billion in worker income, and $2.16 billion in economic output. In the long run, the project will sustain at least 3,378 jobs and produce $21.3 billion in GDP, well above the initial cost of $1.3 billion to both states.
- Proposed: The Ohio River Bridges project in the Louisville area is expected to support 4,118 construction jobs initially and 17,796 total jobs per year on average over 30 years while producing $7.8 billion in cumulative economic output.
- Proposed: The Innerbelt Eastbound Bridge in Cleveland will expand capacity by 25 percent and be completed two years earlier under a P3 than without private funding.
P3s are justified when they allow governments to expand the delivery of public works and services of an acceptable quality at lower costs to taxpayers. To improve our nation’s infrastructure, seven policy positions are recommended:
- Governments should increase P3s in “Core and Core Plus” projects and avoid P3s in retail developments, sports stadiums, and schools.
- P3s should include Project Labor Agreements (PLAs) and should pay the prevailing wages of the communities in which the projects occur.
- P3s should incorporate a competitive bidding process with at least four bidders.
- P3s should allow the private sector to collect user fees for the delivery of the public service.
- To eliminate monopolistic practices, the government should cap user fee prices and incorporate a benefits-sharing agreement.
- Governments should only offer P3 agreements if the private sector will internalize its externalities.
- P3s should include stakeholder input throughout the process.
Ultimately, a public-private partnership is a collaborative development strategy which can bring transportation efficiency gains, remove debt from public agency balance sheets, support thousands of jobs for workers in a weak labor market, and spur billions of dollars in economic development.
- Collaborative Development: Full Report, One-Page Summary, and The Monitor article.